The next administration of Nigeria, after the current regime of President Muhammadu Buhari, is set to begin the repayment of a loan of $800 million approved by the World Bank as a subsidy palliative. This loan was secured by the Federal Government to provide post-petroleum subsidy palliatives for over 50 million Nigerians ahead of June 2023. The financing agreement document for the National Social Safety Net Programme – Scale Up between the Federal Republic of Nigeria and the International Development Association of the World Bank was obtained by The PUNCH on Tuesday, and reveals the details of the loan and the repayment plan.
The objective of the project is to expand coverage of shock-responsive safety net support among the poor and vulnerable, and strengthen Nigeria’s national safety net delivery system till June 30, 2024. The loan was concessional financing, which means it is below-market-rate finance provided by major financial institutions, such as development banks and multilateral funds, to developing countries to accelerate development objectives.
The $800m loan obtained by the Federal Government attracts a maximum commitment charge rate of one-half of one per cent per annum on the Unwithdrawn Financing Balance, and a service charge of three-fourths of one per cent per annum on the withdrawn credit balance, according to the document. The interest charge is one and a quarter per cent per annum on the withdrawn credit balance.
Additionally, a percentage of the principal amount of the loan is expected alongside the other charges, and this will increase over time. While the first payment will be 1.65 per cent of the principal amount, the last payment will be 3.40 per cent of the principal amount. The payment dates are January 15 and July 15 in each year, starting from January 15, 2027, with payments in dollars.
The repayment will be made in installments, with the first payment due on January 15, 2027, and the last payment due on July 15, 2051. This means that Nigeria is expected to repay the loan over a period of 25 years.
Nigeria is expected to have a new president from May 29, 2023, who will be at the helm of affairs of the country until May 29, 2027. The President-Elect, Bola Ahmed Tinubu, is expected to be sworn in on May 29, 2023. This means that the next administration is expected to begin the repayments for the $800m loan.
The PUNCH had exclusively reported in January this year that the Federal Government would deploy Point-of-Sales agents for cash transfers during the National Social Safety Net Programme Scale Up. The finance minister noted that the agents would be deployed so that they can reach rural communities that are not banked. The Central Bank of Nigeria had also suggested the use of eNaira for cash transfers during the National Social Safety Net Programme Scale Up in an effort to drive a cashless economy, according to the National FinTech Strategy document obtained from the website of the CBN.
The use of eNaira can ensure the proper use of social funds, ensure high-quality data can be collected on the performance of these programs, and help to prevent leakage or diversion of funds. This capability could be extended to other use cases in financial services and related ecosystems, where there exists a priority to maintain the integrity of funds and the purpose for which it is used.
the loan from the World Bank is a step towards helping Nigeria’s poor and vulnerable citizens during the post-petroleum subsidy era, and the repayment plan will be a significant financial commitment for the country over the next 25 years.